Home loans: Making most of headwinds

NHB is considering a proposal to increase the loan-to-value ratio (LTV) for home loans to 90% of the property value from the current 80%, which would mean home loan borrowers can take loans up to 90% of their property’s value

Banks and non-banking financial companies (NBFCs) are getting active to make sure they get the maximum number of home loan borrowers when growth in real estate picks up.

HDFC has announced a discounted interest rate of 10.15% for all new borrowers irrespective of the loan amount. The new scheme has been in force since the month of August 2014. Bajaj Finance, an NBFC, followed suit with a new home loan scheme, under which borrowers need not pay instalments for the first three months.

State Bank of India is offering women borrowers an interest rate of 10.10% for home loans above R75 lakh while ICICI Bank is giving a further 0.05% discount with loans available at 10.10%.

Since the tenure of home loans is usually quite long, there are bound to be cyclical highs and lows for interest rates, but such discounted schemes help borrowers make quick decisions, especially if they have been waiting for the right opportunity to take a home loan.

Rising loan-to-value ratio

If tax benefits and discounted interest rates are not enough, here is more good news for new home loan seekers. National Housing Bank, or NHB, is considering a proposal to increase the loan-to-value ratio (LTV) for home loans to 90% of the property value from the current 80%. Once implemented, this would mean home loan borrowers can take loans up to 90% of their property’s value.

This new rule can be effective for people with small savings, who have so far been unable to save the minimum 20% margin money that institutions expect the borrower to invest.

The new changes in the LTV rule, once effective, would only be made available for home loans above the minimum threshold limit of R20 lakh.

Note that a higher LTV only reduces the margin money to be raised by the borrower while increasing the quantum of the home loan and, hence, the total interest cost of the loan. Do bear in mind though that home loan funds are not provided for stamp duty and registration costs and borrowers must keep some part of their funds for registration fee and stamp duty charges.

The recent announcement by finance minister Arun Jaitley in his annual budget speech has given a positive impetus to the infrastructure and real estate sector. The finance minister allocated R4,000 crore for low-cost housing, encouraging more real estate developers to bring in low-cost projects.

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